Question

You are considering purchasing a CNC machine which costs $160,000. This machine will have an estimated service life of 11 years with a net after-tax salvage value of $16,000. Its annual after-tax operating and maintenance costs are estimated to be $51,000. To expect an 19% rate of return on investment, what would be the required minimum annual after-tax revenues? X More Info Th Single Payment Compound Amount Equal Payment Series Present Worth Factor (P/A, i, N) Present Worth Compound Amount Sinking Fund Capital Recovery Factor (A/P, i, N) Factor (F/P, i, N) Factor Factor Factor (P/F, i, N) (F/A, i, N) (A/F, i, N) 1.0000 0.4566 0.2773 0.1890 0.1371 1 1.1900 1.0000 0.8403 0.8403 1.1900 2 1.4161 2.1900 1.5465 0.7062 0.6466 0.5934 0.4987 0.4190 1.6852 3.6061 2.1399 0.4673 2.0053 2.3864 4 5.2913 2.6386 0.3790 5 7.2966 3.0576 0.3271 2.8398 3.3793 9.6830 6 0.1033 3.4098 0.2933 0.3521 3.7057 7 12.5227 0.2699 0.2959 0.0799 3.9544 8 4.0214 15.9020 0.2529 0.2487 0.0629 19.9234 4.1633 9 4.7854 0.2090 0.0502 0.2402 5.6947 4.3389 10 0.1756 24.7089 0.0405 0.2305 Ent 11 6.7767 30.4035 0.0329 4.4865 0.1476 0.1240 0.2229 12 8.0642 37.1802 4.6105 0.0269 0.2169 All Check Answer 13 9.5964 45.2445 4.7147 0.1042 0.0221 0.2121

Answer 1

Cost of the CNC machine = 160,000

Life = 11 years

Salvage Value = 16,000

Annual operating and maintenance cost = 51,000

To expect 19% rate of return what should be the annual revenues?

0 = -160,000 – 51,000 (P/A, 19%, 11) + A (P/A, 19%, 11) + 16,000 (P/F, 19%, 11)

0 = -160,000 – 51,000 (4.4865) + A (4.4865) + 16,000 (0.1476)

0 = – 388,811.5 + A (4.4865) + 2,361.6

0 = – 388,811.5 + A (4.4865) + 2,361.6

0 = – 386,449.9 + A (4.4865)

386,449.9 = A (4.4865)

A = 86,136

The annual revenues should be 86,136